Foreclosures, job loss drive affordability

High foreclosure rates and widespread unemployment have made homes in some large cities more affordable, according to a study by real estate search company Trulia.

The company has released an index comparing total housing and renting costs in September in the country’s 50 largest cities. The index’s price-to-rent ratio compares the average list price to the average rent on two-bedroom apartments, condos, townhomes and co-ops listed on Trulia.com.

The five cities with the highest price-to-rent ratios were New York; Seattle, Wash.; Fort Worth, Texas; Omaha, Neb.; and Sacramento, Calif. The five cities with the lowest ratios were Arlington, Texas; Fresno, Calif.; Miami, Fla.; and Mesa and Phoenix, Ariz.

"Higher prices of homeownership in cities like Omaha and Seattle reflect the fundamental real estate truth that people want to live where jobs are relatively plentiful," said Tara-Nicholle Nelson, consumer educator at Trulia, in a statement. Nelson is also an Inman News columnist.

"Workforce demand has kept prices in these cities at a higher level, relative to other large American cities with less healthy job markets — Omaha, for example, has reported unemployment rates significantly lower than national averages," she said.

Averaged out, the top 10 cities where it was cheaper to rent than to buy had an unemployment rate of 9.2 percent, while the top 10 cities where it was cheaper to buy had an unemployment rate of 10.8 percent. Some of these cities were in the same metro area and were therefore attributed the same unemployment rate (i.e., Fort Worth and Arlington, Texas; and Mesa and Phoenix, Ariz.).

Of the 50 cities, 18 had a ratio of 1-15, indicating that it was much cheaper to own than to rent in the city. Twenty-four had a ratio of 16-20, meaning it was more expensive to own a home in those cities but that homeownership might make financial sense depending on a family’s situation.

The total costs of homeownership were far greater than the costs of renting in eight of the cities listed.

The company’s calculations for total housing costs include mortgage principal and interest, property taxes, hazard insurance, closing costs at time of purchase, and ongoing homeowners association dues and private mortgage insurance (where applicable), and offsets mortgage interest, property tax and closing-cost tax deductions. Total renting costs include rent and renters insurance.

Top 10 cities to rent vs. buy 

Top 10 cities to buy vs. rent 

(Source: Trulia, Bureau of Labor Statistics)